Serial entrepreneurship

In Rainmaking we are always looking for awesome teams and ideas to work with. We constantly receive unaided approaches and warm leads from our network. In addition we spend time building our network across Europe and participate in various events to spot talent where they are.

Out of about 100 contacts 25 can be dismissed immediately after a few minutes reading/talking. Mostly these are so crappy stuff that we do not even have to think about whether it is worth spending time on it. We do, however, try to give an honest reply often advising the people not to pursue the startup, since we think it will be waste of their time and money. Fortunately, most of these people actually appreciate this feedback.

For the 75 remaining we do not spend time reading business plans or doing our own research at this stage. We simply engage with the teams to get to know the people behind and see if they can make any progress over a period of time. This might be a simple exchange of emails or a short personal meeting followed up by a small task we ask the team to perform. This could be things like: “please go and ask 5 potential customers about their opinion about your product”. Or “could you run a small Adwords test to gauge the search volume and CPC for these 5 relevant search words”.

Interestingly, then maybe another 50% of the teams simply never come back with anything. Quite astonishing – but that is the fact. Another evidence that it is not about the idea – but about the team and execution. And very few can deliver on that.

For the teams coming back it often becomes very obvious after one or two engagements that many teams are not great. They simply do not impress with their progress, attitude or personality.

Around 10 out of 100 teams are really good and make significant progress. They keep us engaged. Act professionally and committed. They have really pleasant personalities – are people we really enjoy engaging with. And they demonstrate traction week after week. They obviously run into all kind of problems in the early stages, however, we can clearly see they handle those situations as real entrepreneurs would do. And they move on.

Only at this stage are we starting to really looking at the idea and the market. And whether we can add significant value or not.

At the end of the day, we end up working with 1-2 of 100 teams and without  doubt the key selection criteria throughout the process is the team. We have been involved in too many startups to really care about detailed business plans and long term financial forecasts. But we do of course consider whether we believe a startup can make it big and we also care a lot about the action plan for the first 6 months, but the rest is anyway guesswork and will change along the way.

/Carsten

Recycling and reselling of used electronic devices – a bubble bursting

Rainmaking launched a new company, Greenwire, last year, which is specialising in recycling and reselling of used electronic devices (mobile phones, laptops, printers, game consoles etc.). The company is for example trading under the brand www.simplydrop.co.uk, which we purchased from Royal Mail.

In the last 3 months we have seen the reselling prices in Hong Kong (where the most buyers are placed) dropping dramatically. In any commodity trading market you will expect price fluctuations and in this market fluctuations have historically varied by up to 10% in the last 7 years. In the last 6 months prices paid to consumers in UK for smartphones kept going up as more players entered the market. This was further strenghtened by the fact that one player started pricing very aggressively on price comparison sites and all other followed like lemmings to avoid losing market share. In the end the cash paid for mobile phones in UK was out of sync with the demand in Hong Kong and the prices dropped by 60% over 2½ months.

This has caused servere problems for many players, since there typically is a long lead time from pricing a phone on a website and until you collect, process and finally resell the devices. Many have therefore been stuck with huge stocks and have to take the decision to either take a bath on the margin by realising the losses now – or getting funding to keep stock and wait and hope for better prices in the future.

In our case we decided to take the losses now and then adjust prices rapidly to reflect the new market situation. This has caused a loss, but we think it is better to get ahead of the curve and start building sensible pricing – even if this causes loss of market share in the short term.

Accelerating innovative improvements

The interesting learning for us has been to see how the last 3 months of dramatic drops in prices and resulting losses have accelerated the development of new innovative improvements for Greenwire.

When we launched Greenwire we already thought we made dramatic improvements to the business we took over (Simply Drop from Royal Mail). We did for example:

- lower acquisition costs per device by 30%

- lower processing costs by 50%

- reduce overhead by 50%

- introduce new value proposition to customer using vouchers via new platforms (see www.opensesame.co.uk)

We therefore already felt lean and innovative, however, the new situation has accelerated new innovations, which we honestly probably would not have done at least for another 6-12 months. This includes:

- accelerating international expansion

- finding new acquisition channels where we are less dependent on cash payment to customer (i.e. where customers are less price sensitive)

- finding new buyers who have more niche needs, i.e. we break up our batches into smaller batches where each part has a more hungry buyer

- investing into further improvements of our IT platform

All in all we think this will help us having a more solid business going forward, but I would have wished we did not need a bubble to burst before accelerating innovation. It is probably naive to think that we will not fall back into some kind of complacency again, but I will do my best to maintain innovation – and maybe every 6 months create a “constructive crisis”, which can help spark innovation and make us take radical decisions and make radical improvements faster, instead of small incremental improvements.

/Carsten

The purpose of this blog post is to openly share what Rainmaking learned from freshinhale, which we have recently closed down.

Background

In 2010 Rainmaking decided to launch a chain of stop smoking clinics inspired by the German concept, Relief. Basically smokers are offered a combination of soft laser treatment and counselling. Our concern was whether the treatment would actually work, whereas we did not expect it would be that hard to get customers. It turned out that 70% of the smokers actually stopped smoking after getting their treatment, which is very impressive. However, unfortunately we had underestimated how difficult it would be to attract enough customers at a reasonable acquisition cost. We just managed to take the business to breakeven but since we were not convinced we could make a real attractive business out of it, we decided to close down the business in February 2011.

All customers have now been treated, all creditors been paid, and we have arranged with a competitor that our existing customers can get further help for free going forward.

The numbers and facts

The project ran for 10 months and we invested a total of £ 80K in cash plus some unpaid management time. We had one project manager full time and 2 free lancing therapists conducting the treatments. In total we treated 130 customers and 70% stopped smoking. We tested different price points and £ 295 seemed like the most optimal price. Customer acquisition costs were way too high – several hundred pounds on avearge.

We tested Adwords, facebook ads, face-to-face, affiliates and newspaper advertorials. None of them showed consistent and convincing results.

What have we learned?

a) Always dedicate sufficient management time

I was partner lead on the project and I don’t think I have spend sufficient management time on coaching the project manager and helping with the project. In the future we need to ensure we do dedicate enough management time to all our projects.

b) Never underestimate sales

We were very inspired by the German concept, Relief, and we knew that they attracted approx 40 customers/clinic per month at low marketing costs. We therefore anticipated that attracting customers would not be that difficult if the treatment worked. I therefore think that we were too complacent and did not put in the effort really needed to generate the sale. Learning: never ever underestimate sales!

c) Stick to your values – even when things get tough

During the critical phase for freshininhale we were offered an investment at attractive terms. This investment could have made us run for another 12 months – at least. However, we decided to advice the investors not to invest, since we were not ready our self to put in more money and we were concerned whether we could turn the business into something successful. We are proud that we managed to stick to our values and maintain integrity despite the temptation to test the concept further for other people’s money.

d) Be ready to kill your darlings

It always hurts to stop a project, which you have put a lot of effort into. And there is always the temptation to see another 1-2 months where things might change. However, I am glad that we (once again) managed to take the difficult decision to stop the project now and then move on. There is a decent chance that the project would eventually become successful – after all it must be possible to copy the German success, however, I think it is right for us to focus our effort on other project with more tail wind and accept that sometimes we just do not get it right.

/Carsten